Our Take
The 'economically equivalent to deposits' test creates loopholes wide enough for most stablecoin rewards to survive intact.
Why it matters
Crypto firms need yield incentives to expand beyond their stagnant user bases, while banks risk ceding ground in digital payments infrastructure development.
Do this week
Treasury teams: audit your stablecoin exposure classification before Q1 earnings so you can defend reward structures under the new framework.
Senate compromise targets deposit-like stablecoin balances
Sens. Thomas Tillis (R-NC) and Angela Alsobrooks (D-MD) proposed banning stablecoin rewards only when customer balances are "economically or functionally equivalent" to bank deposits. The bipartisan language drew immediate support from Coinbase CEO Brian Armstrong, who called for markup on the proposal.
The definition appears designed to exclude most current stablecoin usage. Kansas City Fed analysis shows less than 1% of stablecoin traffic occurs outside crypto ecosystems for actual payments (per Fed research). The vast majority serves as trading assets, liquidity, or collateral within crypto platforms. About one-fifth sits idle in small, often forgotten balances.
Crypto firms need yield to grow stagnant user bases
The compromise language mirrors medieval banking's approach to usury bans, where endless loopholes allowed prohibited interest payments through "gifts" and manipulated exchange rates. Crypto firms face similar pressure to maintain yield offerings because their retail growth has stalled.
Coinbase's monthly transacting users remain below 2021 levels despite years of attempted expansion (company-reported figures). The firm and competitors struggle to attract users beyond crypto enthusiasts without yield incentives.
Meanwhile, centralized stablecoin issuers like Circle and Tether have reintroduced the centralized control that crypto originally sought to eliminate, essentially recreating digital banking under different regulatory treatment.
Banks should lead stablecoin infrastructure development
Rather than fighting the yield question, banks have opportunities to lead stablecoin integration as financial infrastructure. Their position as trusted ledger keepers gives them advantages in providing stability that decentralized systems currently lack.
The regulatory compromise suggests most current stablecoin rewards will survive classification challenges. Financial institutions should focus on developing their own stablecoin capabilities rather than blocking competitor offerings that may persist regardless of legislative outcomes.